The Trump administration backed South Dakota in the case, arguing that no one could have foreseen how rapidly e-commerce would expand. Online retailers argued that the law was unconstitutional, and the State Supreme Court agreed, but the US Supreme Court overturned the state court ruling.
South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected.
The Supreme Court ruled 5-4 in favor of South Dakota. Large retailers including Apple, Macy's, Target and Walmart, which have brick-and-mortar stores nationwide, already generally collect sales tax from their customers who buy online. "CCIA has serious concerns about the future implications for e-commerce if governments are empowered to tax those who reside beyond their borders". It treats economically identical actors differently for arbitrary reasons. North Dakota, which prohibited states from collecting taxes from sellers that do not have an in-state physical presence.
Lower courts ruled against the state's law, following the physical presence precedent.
Indeed, Justice Gorsuch once called the current system "a judicially created tax shelter".
The rise of the Internet "has made Quill's original error all the more egregious and harmful", the court said, noting that Congress should not have "to address a false constitutional premise of this Court's own creation". Some states that lack a broad sales tax, including New Hampshire, Montana and Washington, had submitted arguments to the court taking the opposite position.
Earlier this year, Iowa legislators approved expanding sales tax to digital goods like e-books, subscription services like Netflix, ride-sharing apps like Uber and physical goods purchased online. Amazon.com, with its network of warehouses, also collects sales tax in every state that charges it, though third-party sellers who use the site don't have to.More news: Mbappe becomes France's youngest-ever scorer in 1-0 win over Peru
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Some members of Congress objected to the decision. The old rule enabled online commerce to boom and helped drive an explosion of small businesses that sell their wares. Bob Goodlatte (R-Va.), Anna Eshoo (D-Calif.), and Jim Sensenbrenner (R-Wis.).
On the flipside, U.S. states will benefit to the tune of somewhere between $8bn and $33bn annually in increased revenues.
Brick-and-mortar stores for years have wrestled with the reality that their online competitors could effectively sell similar goods tax-free, and thus less expensively.
However, the four dissenting judges argued, it should have been Congress and not the Supreme Court that made a decision to flip the tables for the simple reason that the impact will be so significant.
The High Court ruled this morning: "Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v".
South Dakota specifically brought this lawsuit against Wayfair, Overstock.com, and Newegg. But, if a business did not have a physical location in a state, it nearly certainly did not charge sales tax in that particular states.
And according to the Supreme Court case, some large online retailers do not collect taxes on their remote sales.
But it's undeniable that sales taxes represent a key source of revenue for state governments starved for funding. This ruling is likely to lead other states to start requiring sales tax from online retailers, which in turn will be required from the consumer at checkout. They have very different needs and challenges than larger online retailers and we are encouraging them to sign a petition that tells policy makers to support microbusinesses like theirs.